Optimal contracts with public ex post information

Abstract We are concerned with the value of public ex post information about a seller's costs (θ ∈ Θ) to an initially uninformed buyer. We derive necessary and sufficient conditions for a public ex post signal (s ∈ S) that is correlated with the risk-neutral seller's costs to render the initial information asymmetry inconsequential to the buyer. The First-Best outcome for the buyer is shown to be feasible if: (1) the dimension of S is at least that of Θ, or (2) the conditional likelihood function of s given θ is, for one of its realizations, sj, a strictly increasing function of θ and more concave in θ than is the seller's cost function.

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